International Money Express, Inc. — Q2 2020 Form 10-Q
Business and period: Money-transfer services provider operating primarily in the U.S.-to-Latin America and Caribbean corridor, with additional routes to Africa and Asia. This unaudited filing covers the quarter and six months ended June 30, 2020; comparisons are with the same 2019 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $85.1m | $82.7m | $162.3m | $151.0m |
| Operating income | $13.9m | $12.0m | $23.5m | $18.3m |
| Net income | $9.0m | $7.1m | $14.7m | $10.2m |
| Diluted EPS | $0.24 | $0.19 | $0.39 | $0.28 |
| Operating cash flow | Not separately presented for the quarter | $21.5m | $32.1m |
Q2 revenue grew 2.9% year over year and six-month revenue grew 7.5%. Net income increased about 27% in Q2 and 43% for the half. Operating margins were approximately 16.3% in Q2 versus 14.5%, and 14.5% for the first half versus 12.1%; net margins were approximately 10.6% versus 8.6% and 9.0% versus 6.8%, respectively. Transaction volume increased 3% in Q2 and 11% for the first half; the company reported processing approximately 7.6 million and 14.6 million transfers, respectively.
Net wire-transfer and money-order fees drove most revenue growth. Agent and bank service charges rose with transaction volume, reaching 66% of Q2 revenue and 67% for the first half, compared with 66% in both prior-year periods. Lower salaries, SG&A, depreciation and amortization, and interest expense helped earnings. Bad-debt provision increased to $1.1m for the first half from $0.6m, reflecting weaker creditworthiness among a small number of sending agents.
Cash flow and liquidity: First-half operating cash flow fell $10.6m year over year, which management attributed mainly to working-capital movements, including accounts-receivable timing. Investing cash outflow was $1.6m; financing cash outflow was $3.8m, principally scheduled term-loan repayments. Cash was $102.0m at June 30, up from $86.1m at year-end.
Debt: Gross term-loan principal was $93.2m; the balance-sheet carrying amount was $91.1m, net of debt costs. No revolving-credit borrowings were outstanding. The company reported $53.0m of additional borrowing availability and compliance with its credit covenants. The credit agreement matures November 7, 2023; its financial covenants require a minimum fixed-charge coverage ratio of 1.25:1 and maximum consolidated leverage ratio of 3.25:1.
Material developments, outlook and risks
- COVID-19: Management said restrictions and operating changes had not materially adversely affected first-half results, though transaction volume dipped slightly early in the pandemic and increased year over year in May and June. The company reopened all 33 company-operated stores by June 30 with safety measures. Management highlighted uncertainty around the pandemic’s duration, customer unemployment, agent operations and possible renewed restrictions.
- Guidance: The company withdrew its 2020 guidance in Q2 because of heightened uncertainty about the pandemic and its effect on demand. No replacement guidance is provided in the filing.
- Management outlook: Management believed operating cash flows and available revolving-credit borrowings would fund debt service, working capital and expected capital spending for at least the next 12 months. It said it could limit discretionary spending and reprioritize capital projects if needed. This is management’s expectation, not a guarantee.
- COVID-19 and foreign exchange: Peso volatility increased during the period. Management expected continued currency volatility and peso depreciation during 2020, but could not estimate its duration or extent. Longer-term appreciation of the peso or quetzal against the U.S. dollar could pressure margins.
- Settlement: The company recorded approximately $2.9m remaining payable under a $3.25m proposed class settlement of a Telephone Consumer Protection Act case, subject to court approval. Other legal proceedings were not reserved because management said loss probability or damages could not be estimated.
- PPP loan: The company received $3.5m under the Paycheck Protection Program on April 20, 2020, then returned the funds on April 29 following additional SBA and Treasury guidance.
- Other risks: Agent and bank relationships, agent credit losses, cybersecurity and remote-work data security, regulatory compliance, competition from digital platforms, variable-rate debt and covenant compliance remain relevant. A hypothetical 1% rate change would alter annual cash interest on the term loan by about $0.9m.
Key investor verification points
- Track transaction volumes, fee revenue and agent/bank service charges to assess whether growth converts into sustained margin improvement.
- Monitor receivables, bad-debt provisions and sending-agent credit quality, particularly as pandemic-related economic effects evolve.
- Verify operating cash flow and working-capital trends against reported earnings and the company’s liquidity expectations.
- Follow term-loan repayments, $53.0m of stated borrowing availability, interest-rate exposure and ongoing covenant compliance.
- Check for updates on COVID-19 impacts, 2020 guidance, foreign-exchange volatility and the court’s approval and administration of the TCPA settlement.
- Distinguish GAAP results from non-GAAP measures: first-half Adjusted EBITDA was $30.6m versus $27.0m, and Adjusted Net Income was $18.4m versus $15.4m; both exclude specified items, including share-based compensation and intangible amortization.